Recent Case Imposes Liability on Amazon for Online Sales

Amazon’s recent classification as a “seller” under Pennsylvania law could expose it to additional liability for product sales made on its massive online marketplace. A recent ruling issued by the Third Circuit Court of Appeals could expose Amazon to claims for strict product liability and negligence in states having similar laws to those in Pennsylvania.

Oberdorf v. Amazon.com Inc.

On December 2, 2014, Heather Oberdorf visited Amazon’s website to purchase a new dog collar. Finding a dog collar that met her needs, sold by third-party vendor “The Furry Gang,” Oberdorf made her purchase. Shortly thereafter, the dog collar was shipped by The Furry Gang to Oberdorf, who eventually placed the collar on her dog, Sadie. On January 12, 2015, the D-ring on the dog collar broke when Sadie unexpectedly lunged during her daily walk. As a result of that break, the leash of the collar recoiled back and hit Oberdorf in the face, breaking her eyeglasses and ultimately causing Oberdorf to suffer permanent blindness in her left eye.

Oberdorf filed a lawsuit asserting claims against Amazon for strict product liability and negligence in the United States District Court for the Middle District of Pennsylvania. There, the District Court held that Oberdorf’s claims were subject to dismissal on summary judgment because (i) under Pennsylvania law, Amazon was not the “seller” of the dog collar (as required to attach liability for strict liability) and (ii) the claims were barred under the Communications Decency Act (“CDA”) because Oberdorf sought to hold Amazon liable for its role as the online publisher of The Furry Gang’s sales content (to possibly include allegations that Amazon failed to provide adequate warnings and/or edit inadequate ones regarding the use of the dog collar).

Oberdorf appealed the District Court’s ruling to the Third Circuit Court of Appeals, who reversed the District Court’s ruling as to strict liability by holding that Amazon was a “seller” under Pennsylvania law, and that Oberdorf’s claims under the CDA were not barred as a matter of law – except to the extent they relied upon a “failure to warn” theory of liability.

Why Amazon Is a “Seller” Under Pennsylvania Law

The Third Circuit held that Amazon was a “seller” capable of being held liable for purposes of strict liability by applying a four-factor test under Pennsylvania law (as provided in the Restatement (Second) of Torts § 402A (“Restatement”)).

The Third Circuit held that Amazon met the first test (whether it “may be the only member of the marketing chain available to the injured plaintiff for redress”) because third-party vendors like The Furry Gang can only communicate with customers like Oberdorf through Amazon (as required by Amazon guidelines). Such a policy, in the Third Circuit’s opinion, would enable third-party vendors to “conceal themselves from the customer, leaving customers injured by defective products with no direct recourse to the third-party vendor.” Supporting the Third Circuit’s conclusion were the facts that Amazon generally “takes no precautions to ensure that third-party vendors are in good standing under the laws of the country in which their business is registered” and “had no vetting process in place to ensure, for example, that third-party vendors were amenable to legal process.” Indeed, in the subject case, neither Oberdorf nor Amazon was able to locate the whereabouts of The Furry Gang for purposes of the lawsuit.

The Court also held that Amazon met the second factor for being a “seller” under Pennsylvania law (whether “imposition of strict liability upon the actor would serve as an incentive to safety”). Although Amazon does not have direct influence over the design and manufacture of such third-party products, “Amazon exerts substantial control over third-party vendors.” In demonstrating that “substantial control,” the Third Circuit referenced the requirement that all third parties selling their products on Amazon be forced to enter into Amazon’s Services Business Solutions Agreement (“Agreement”), which grants Amazon the sole authority and discretion to suspend, prohibit, or remove any product listing, to withhold payments, to impose transaction limits, and to terminate or suspend any “service” to any third-party vendor for any reason at any time. Such power was cited by the Court in holding that Amazon “is fully capable, in its sole discretion, of removing unsafe products from its website” and, thus, imposing strict liability on Amazon would be “an incentive to do so.”

Amazon was further held to have satisfied the third factor in being classified as a “seller” (whether Amazon was “in a better position than the consumer to prevent the circulation of defective products”). The “potential for continuing sales encourages an on-going relationship between Amazon and the third-party vendors.” The Court held that Amazon was more uniquely positioned to receive reports of defective products than the typical third-party vendor, in part because Amazon is able to collect customer feedback and because it “specifically curtails the channels that third-party vendors may use to communicate with customers.”

The fourth and final factor in being categorized as a “seller” under Pennsylvania law (whether Amazon “can distribute the cost of compensating for injuries resulting from defects”) was also found to exist by the Third Circuit. In support of its position, the Court pointed out the facts that Amazon could simply “adjust the commission-based fees that it charges third-party vendors based on the risk that the third-party vendor presents” and continue to rely upon the indemnification provision it includes in its Agreement.

Some Claims Under The CDA Were, However, Barred

In contrast, Oberdorf’s claim under the CDA – namely, that Amazon should be held liable for its role in publishing the “third-party information” concerning the dog collar provided to it by The Furry Gang – was less well received by the Third Circuit. The CDA holds that no “provider or user of an interactive computer service” should be treated as the “publisher or speaker” of any information provided by another information content provider. Website owners/operators rely upon the CDA to shield themselves from liability for defamatory or otherwise unlawful messages that are placed on their websites by users and that are not edited or deleted. The CDA was also intended to allow such website owners/operators to “perform some editing on user-generated content without thereby becoming liable” for that same content as if they were the “speaker” or “publisher” of that content.

In its defense, Amazon argued that Oberdorf’s claims were barred because she sought to treat Amazon as the “publisher or speaker” of material that had simply been provided to it by The Furry Gang. Oberdorf countered that she was not looking at Amazon’s role in publishing third-party information, but rather at its “direct role in the actual sale and distribution of the defective product.” Nonetheless, the Court indicated that, despite her argument on appeal, Oberdorf also appeared to contend that Amazon “should have revised the content provided to include warnings to ensure the safe use of the dog collar,” and that such a contention would fail under the CDA. Given this lack of clarity, the Third Circuit remanded the case back to the Middle District of Pennsylvania to determine the factual bases for Oberdorf’s claims, indicating that:

“to the extent that Oberdorf’s negligence and strict liability claims rely on Amazon’s role as an actor in the sales process, they are not barred by the CDA . . . [but] to the extent that Oberdorf is alleging that Amazon failed to provide or to edit adequate warnings regarding the use of the dog collar, we conclude that that activity fails within the publisher’s editorial function. That is, Amazon failed to add necessary information to content of the website. For that reason, these failure to warn claims are barred by the CDA.”

Practice Pointers

While this decision may be persuasive in states that also follow the Restatement for the imposition of strict liability on “sellers” as in Pennsylvania, its precedential value is not yet known. A federal court decision on Pennsylvania law does not bind Pennsylvania courts and has very little bearing on state courts in other states. In addition, it is quite likely that Amazon will seek ways to minimize its liability for defective products sold on its website, most likely by charging its third-party vendors higher commission fees to cover any additional legal expenses occasioned by this decision (as opposed to giving up the massive amount of control it has over both the sales of such products on its website and the third-party vendors who utilize its massive online footprint).

The Third Circuit’s distinction between “online” editorial and “offline” sales activities in the context of the CDA may prove problematic, as the dissent argues. It remains to be seen how that distinction is applied in other cases, or how Amazon responds to this ruling. Amazon may very well simply modify its operations (or add language to its Agreement) to help it characterize its activities as online editorial functions, as opposed to offline sales functions, to avoid any potential future liability.